Against the Grain

our-of-favor brands

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We’ve been looking for out-of-favor brands since ATG launched. Some businesses are driven by management, some by macro trends, some by innovation, etc… There are a lot of reasons why a business can excel; a resurgence of a brand is one of those reasons. What better way to turn a brand around than a new global advertising campaign? I’m always on the look out for new ad campaigns that could turn things around.

In this case I’m going to be talking about pizza. As a lactose intolerant man, and a New Yorker, I’m not the global pizza brand customer. But I know there are three major players in the industry: Pizza Hut, Domino’s, and Papa John’s. There are some secondary brands (Little Ceasers, CiCi, etc…) and then there are mom and pop shops. Pizza isn’t a new category, nor is it going out of favor. What drives the success of these companies versus the rest of the industry is branding, new products, and global/national food trends.

I really like the new Pizza Hut redesign. Pizza Hut built its brand on the red roof stores, which was targeted towards eat-in customers. As pizza consumption moved to delivery, the eat-in business suffered, and stores built for eat-in customers were not a good use of capital. Pizza Hut has been on the decline for some time. Same-store-sales have been negative for 8 quarters in a row.

I like the focus on pizza sauces. I like the spirals. I like the new logo. I think both Papa John’s and Domino’s have been running long term campaigns, which I like, but have been on for years. Even good campaigns can lose their impact after a few years. So maybe it’s Pizza Hut’s turn. I have convinced myself I like the ads with grumpy Italians even though a writer I respect recently trashed them.

Pizza Hut is owned by Yum brands (YUM), which also owns KFC and Taco Bell. So even if Pizza Hut does well, YUM brands trends could differ. But I like the direction KFC and Taco Bell are going, and it appears taht the stock doesn’t have much built in for “The Hut.”

While this isn’t my typical value play, I don’t mind owning a world leader with a side story that could provide some upside.